Patton & Dean, LLC Are Credit Cards Dischargeable?

Credit Card Dischargeability in Kansas City Bankruptcy

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For some, emergencies that create additional bills, medical emergencies, or even loss of employment may result in the inability to pay off credit cards. When a household has several credit cards with balances, the situation can quickly get out of control. Are credit cards dischargeable in Chapter 7 or Chapter 13 bankruptcy?

Struggling with credit card debt? Contact our Kansas City bankruptcy attorneys at (913) 203-4786 for a free consultation today!

Recently, a study conducted by CardHub, a personal finance website, indicated that in 2014 Americans added $57 billion in new credit card debt, a debt that currently stands at $831 billion in the U.S. Over the previous six years (since 2009), credit card debt continued to rise across the nation. As experienced Kansas City bankruptcy attorneys, we know that credit cards are one of the leading causes of bankruptcy. While they do serve a purpose, credit cards can and often do leave individuals and families facing financial hardship as it becomes difficult or impossible to make credit card payments. High interest rates only compound the problem.

What Happens If Credit Card Debt Goes into Default?

The consequences of defaulted credit card debt can be severe. For starters, defaulted credit card debt often results in the creditor filing a lawsuit. Eventually, the lawsuit will result in a judgment. With a judgment, your creditor can garnish your wages.

Further, when one defaults on credit cards, the negative monthly reporting can severely damage your credit rating. Ultimately, a damaged or poor credit rating can affect almost every aspect of your life.

For example:

You may not be eligible for a loan to purchase a home, car, or other large purchase. Applications are frequently rejected by banks or financial institutions; in some cases, you may have to obtain a loan with a high interest rate, which only adds to your financial burden.
Poor credit may result in your having to pay higher insurance premiums or larger deposits to have utilities turned on.
A low credit score may result in an applicant being turned down for financing of a mobile phone.
It can be difficult to obtain a place to live when your credit rating is damaged, whether in a rental home or apartment or trying to secure a mortgage on a home.
While not as common, some employers conduct credit checks when considering an individual for employment; some will not hire someone with a poor credit rating.

Impact of Bankruptcy on Credit Card Debt

Filing for bankruptcy can significantly impact credit card debt, offering a path to relief for individuals struggling with overwhelming balances.

Chapter 7 Bankruptcy: In a Chapter 7 bankruptcy, many types of unsecured debt, including credit card debt, can be discharged. This means that the individual is no longer legally responsible for paying back the credit card balances. It is especially beneficial for those who cannot afford to pay off high-interest credit cards.
Chapter 13 Bankruptcy: For individuals with a steady income, Chapter 13 allows the debtor to reorganize their debt. While credit card debt isn't completely wiped out, it may be restructured and repaid over a period of 3 to 5 years under a court-approved plan. This gives the debtor a chance to catch up on their payments without being overwhelmed by interest and penalties.

Dischargeable vs. Non-Dischargeable Credit Card Debt

Not all credit card debt can be discharged through bankruptcy. There are specific circumstances where certain credit card debts remain the responsibility of the filer.

Dischargeable Credit Card Debt: Most credit card debts can be discharged in bankruptcy if they were used for regular purchases, such as groceries or daily expenses. If the individual files Chapter 7, this debt is generally erased, giving the filer a fresh start.
Non-Dischargeable Credit Card Debt: There are situations where credit card debt will not be discharged, including:
Fraudulent Charges: If the debtor incurred credit card charges through fraudulent means, such as lying about their intent to pay back the debt or using a credit card knowing they couldn’t repay it, these debts are not dischargeable.
Luxury Purchases: If a person buys luxury items, like expensive jewelry or vacations, on a credit card shortly before filing for bankruptcy, these debts may be considered non-dischargeable if they occurred within 90 days of filing.

How Chapter 13 Affects Credit Card Debt

Chapter 13 bankruptcy offers a more structured way to handle credit card debt, particularly for those with a stable income.

Debt Repayment Plan: In Chapter 13, instead of discharging credit card debt, the debtor will work with the bankruptcy court to create a repayment plan. This plan lasts 3 to 5 years, during which the debtor will make monthly payments toward their credit card debt and other unsecured debts.
Reduced Payments: The court may reduce the total amount owed or extend the repayment period, making it easier for the debtor to keep up with payments. Credit card debt may be repaid in full or partially depending on the filer’s income and expenses.
Protection from Creditors: During the Chapter 13 repayment period, creditors are legally prevented from pursuing further action against the debtor, such as collections or lawsuits. This gives the individual time to rebuild their financial stability without the threat of constant creditor harassment.

Filing for bankruptcy can be a game-changer for those struggling with credit card debt. Understanding the options available, including the specifics of Chapter 7 and Chapter 13, is crucial in making the right decision for your financial future.

Ready for a fresh financial start? Contact our team at (913) 203-4786 to discuss your bankruptcy options and how we can help!

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Can Credit Card Debt Be Discharged in Bankruptcy?

Yes. Generally, most credit card debt is dischargeable in both Chapter 7 and Chapter 13 bankruptcy. It is important to note there are certain types of credit cards, such as Nebraska Furniture Mart, that may be secured debt. Secured debt is not dischargeable without surrendering the property associated with the debt. Therefore, Chapter 13 bankruptcy may be a good option, depending on the assets involved and your particular situation. In this type of bankruptcy, monthly payments on credit card debt that is secured can be reduced to a more affordable amount. Once the agreed-upon amount is paid, the debt is discharged.

FAQ - FREQUENTLY ASKED QUESTIONS

Can I file for bankruptcy if I have a lot of credit card debt?
Yes, if you have significant credit card debt and are struggling to make payments, bankruptcy may be an option. Chapter 7 can discharge most credit card debt, while Chapter 13 allows you to reorganize and repay it over time.
Will my credit card debt be completely wiped out in Chapter 7 bankruptcy?
Most credit card debt can be discharged in Chapter 7 bankruptcy, but there are exceptions. If the debt was incurred through fraud or luxury purchases shortly before filing, it may not be discharged.
How will bankruptcy affect my credit score?
Filing for bankruptcy will significantly impact your credit score, but it can also provide a fresh start. Over time, as you rebuild your finances, your credit score can improve, especially if you avoid taking on new debt.
Can I keep my credit cards after filing for bankruptcy?
In Chapter 7 bankruptcy, most credit cards are canceled, and you will not be able to use them during or after the bankruptcy process. In Chapter 13, you will continue to make payments on some debts, but the status of your credit cards will depend on your repayment plan.
Can I file for bankruptcy if I’ve been behind on payments for several months?
Yes, if you're behind on credit card payments or facing collection actions, bankruptcy may be a good option. It can stop creditor harassment, prevent wage garnishment, and help you get a fresh start financially.
Will bankruptcy stop creditors from contacting me?
Yes, once you file for bankruptcy, an automatic stay is put in place, which prevents creditors from contacting you, filing lawsuits, or attempting to collect the debt. This includes credit card companies.
Will filing for bankruptcy erase all of my debts?
No, bankruptcy does not erase all debts. Certain debts, such as student loans, child support, and recent tax debts, are generally non-dischargeable. However, bankruptcy can discharge many unsecured debts, like credit card balances.